Tesla’s PR Machine Wins Again

You can’t keep an entrepreneur down.

You may have seen the report last week that the South Australian government has awarded a battery system project to our old buddies, Tesla, Inc. [NASDAQ:TSLA].

Well, no sooner is the ink dry on the contract (we assume they’ve signed a contract) than doubts have begun to emerge.

This from Bloomberg:

Billionaire Elon Musk’s plan to install a giant battery to help fix a power crisis in South Australia will come at a “big price” with installation costing 60 percent more than alternative open cycle gas plants, according to Wood Mackenzie Ltd.

Musk’s Tesla Inc. won a tender Friday to build what the entrepreneur said is the world’s largest lithium-ion battery system capable of providing enough power for more than 30,000 homes. Little guidance or estimates were given on the cost of supplying the unit, sparking debate over the appropriate mix of power generation in the mainland state with the highest levels of clean energy.

Assuming the project even gets off the ground, which we doubt will happen, it’s clear to us that the number of households expected to benefit isn’t that impressive.

By our reckoning, it would cater for no more than 4% of South Australia’s households, or not even 2% of the population.

But we’ve always known Tesla is more about public relations than it is about actual solutions…or profitability.

As for the share price, a small rebound after a week of mostly falls:

Graph depicting Tesla's share price

Source: Bloomberg
[Click to enlarge]

The stock price is down 17.6% in two weeks.

It means that General Motors Company [NYSE:GM] is the world’s biggest car company once more. But will that last?

Tesla’s new, and hotly awaited, Model 3 is due to be delivered to expectant customers within the next two weeks.

Customers may, or may not, be excited, but investors haven’t been. Once the car is on the road, and test-drivers have the opportunity to air their honest opinions, we wonder just how many of those who placed a deposit for a Model 3 will actually go through with the purchase.

We still favour Tesla as a short-sell.

Competition is hotting up

In more potential trouble for Tesla, competition. Or rather, increased competition.

From last week’s Independent:

All of Volvo’s cars from 2019 will be powered by electric motors, the company has announced.

Describing the decision as “one of the most significant moves by any car maker”, Volvo said that by 2019 it will make a range of cars, none of which will be powered purely by a combustion engine.

There will still be some hybrid vehicles, which use a traditional motor alongside an electric one. But the company will also focus on fully electric cars.

It’s a common myth that companies have to be the first to market with an idea…and that those who get there first will reap the riches.

Not necessarily so.

In fact, arguably, in the capital-intensive and fast-changing car industry, the worst thing a company can do is be the first to market.

Because it won’t be long before others offer similar, and often better, products.

Tesla nailed its mast to the electric car industry early on. That’s fine. It has built up a big brand. But now others are getting in on the act. The big companies. Those with deeper pockets, and those which may find it easier to finance expansion and new facilities.

As an example, Fox Business reports:

General Motors said it sold 1,642 Chevrolet Bolt EVs in the U.S. in June. That’s the highest monthly total yet for U.S. sales of the little electric crossover, which became the first mass-market electric vehicle with a range over 200 miles when it was launched in December.

Tesla’s Model 3 may get a lot more media attention than GM’s not-so-sexy little electric crossover. And it’s likely that the Model 3’s sales will outpace the Bolt’s before too long.

But so far, at least, the Model 3 hype hasn’t stopped GM from attracting more and more buyers to its own highly creditable electric entry.

The Chevy Bolt isn’t and won’t be the last competitor for Tesla. Whether either will be successful is another thing.

Tesla still pumping

Meanwhile, while the world goes ga-ga for electric cars, the Financial Times notes that:

The US will quadruple its crude oil exports to volumes greater than those of most Opec members within three years, an influential consultant has forecast, as Texas producers seek customers for seemingly unstoppable supplies.

By 2020, exports of US crude would reach 2.25m barrels per day, according to PIRA Energy. By comparison, last year Kuwait exported 2.1m b/d, Nigeria 1.7m b/d and the US itself 520,000 b/d.

So, everyone is going green and electric...and yet oil production and consumption keeps going up.

Something just doesn’t quite add up.


Kris Sayce,
Publisher, Markets & Money

Editor’s note: This content originally appeared in Port Phillip Insider.

Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Markets and Money e-newsletter in 2005. He is the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service, Markets & Money.

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